Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Why Groupon Is Rebranding Groupon+

The online coupon marketplace is ditching its new product's name, but expanding the actual product.

As part of its fourth-quarter earnings release, discount marketplace Groupon(NASDAQ:GRPN) made a somewhat surprising announcement. The company is changing the brand name of one of its key transformation initiatives, Groupon+.

Groupon+, unlike the traditional Groupon voucher, is a card-linked offering that, when purchased, links directly to an uploaded credit card number. When that card is used for the offering, the customer receives cash back.

The difference between Groupon+ and Groupon's traditional voucher is that a) there is no need to download a voucher and present it to the vendor; b) customers are only charged when the item or service is purchased, not when a voucher is purchased beforehand; and c) usually, Groupon+ offers are small 5%-20% discounts on everyday purchases, not the deep discounts normally associated with vouchers.

The offering was rolled out in late 2017 amid much fanfare as management touted Groupon+ as a key element to its multiyear transformation plan. So it may come as somewhat of a surprise that the company is now undertaking a "rebranding" of the product less than two years after it was introduced.

Don't worry, Groupon+ fans

If you were worried, either as a Groupon+ customer or as a Groupon investor, that Groupon+ offers are going away, there's no need to panic. These types of offerings are now going to be called "Cash Back Offers."

It appears that "Groupon+" was perhaps too fancy a name for a relatively straightforward discount. Trying to sell a new product to people is hard enough; why not name the product exactly what it does so that there's no confusion? CEO Rich Williams explained:

[W]e've been testing significant number of permutations of card-linked products that really just, again, apply a discount via the credit card. And that's something that I think has a lot of potential on our platform to just, again, make it how the product works to really keep it in the vein that people understand, which is, you're giving me cash back. So, again, it's to give us more room to play and to not pigeonhole us into a specific version of card-linked or to confuse the customer when we start to make card-linked part of other things. We want to avoid that confusion as much as possible and give ourselves as much room as possible to innovate around the card-linked platform we've built here and to make it, again, just core to how the product works for consumers every day.

Williams went on to say that currently, Groupon+ is specifically a low-discount offer applying primarily to restaurants; however, Groupon now wants to expand card-linked offers into a variety of products, whether they be deeper discounts, non-restaurant offers, or even ongoing loyalty programs by local merchants. So rather than shutting down the product, Groupon is aiming to greatly expand these cash-back, card-linked offers.

In his fourth-quarter letter to shareholders, Williams revealed that ongoing loyalty offers via Groupon+ were a sizable portion of Groupon+ redemptions, which grew "well into the triple digits." Williams also revealed that the company was rolling out health and beauty card-linked offers, and that other card-linked products would be rolled out to other local service verticals later this year.

Cash back will be key

The company will need the new products to succeed. Groupon's fourth-quarter earnings release once again showed the company's stubbornly persistent headwinds. Groupon missed not only analysts' earnings estimates, but also management's own preferred metric, adjusted EBITDA, which came in at just $270 million for the full year, well short of management's guidance of $280 million to $290 million. The recent success of card-linked offers is not yet big enough to offset the headwinds from the core voucher business, which continues to suffer from declines in both direct email marketing and changes to Alphabet's Google search algorithm.

Management also guided for zero adjusted EBITDA growth in 2019, which is disappointing, but will include sizable investments in expanding card-linked product offers. On the bright side, management also decided to reveal its prediction for 2020 adjusted EBITDA, which it anticipates will be $300 million "or higher," hopefully benefiting from this year's continued investments.

Whether Groupon can grow profits in 2020 will likely depend on how fast it can expand the newly named "Cash Back" offers on the platform in 2019, so investors should keep their eyes peeled for progress updates on Groupon+ -- er, "Cash Back Offers" -- over the next several quarters.